Holding Up The Empire Colombia American Oil Interests and The 1921 Urrutia Thomson Treaty

Holding Up the Empire:
Colombia, American Oil Interests,

and the 1921 Urrutia-Thomson Treaty
XAVIER DURAN AND MARCELO BUCHELI
Why did the United States subsidize American multinationals’ entry into countries
treated as informal colonies? We study a classic case of American imperialism,
the 1903 U.S. support of Panama’s secession from Colombia and subsequent U.S.
SD\PHQWRI WKH UHSDUDWLRQVWKDW RSHQHG &RORPELD¶VRLO ¿HOGVWR6WDQGDUG
Oil. We test Noel Maurer’s (2013) empire trap hypothesis quantitatively. Archival
and econometric evidence documents Colombia’s threat to Standard Oil’s sunk
investment, which induced the multinational to build a supermajority coalition
in the U.S. Senate to back a reparations treaty. Results support the empire trap
K\SRWKHVLVEXWSRLQWRXWLPSRUWDQWTXDOL¿FDWLRQV
W hy did the United States subsidize American multinationals to

enter into countries treated as informal colonies? Classic cases of
American commercial imperialism, including covert Central Intelligence
Agency (CIA) actions in Iran (1951), Guatemala (1954), and Chile
(1973), suggest that imperial interventions protected U.S. multinationals’
property, led to increasing stock share prices for the multinationals, and
supported U.S. exports to these countries (Dube, Kaplan, and Naidu
2011; Berger et al. 2013). It is not clear, however, if the rationale for
these imperial interventions was to improve U.S. welfare or if it was the
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The Journal of Economic History, Vol. 77, No. 1 (March 2017). © The Economic History
Association. All rights reserved. doi: 10.1017/S0022050717000055
Xavier Duran is Associate Profesor, Universidad de los Andes Management School, Calle
21 No. 1-20, Bogota, Colombia. E-mail: xh.duran21@uniandes.edu.co. Marcelo Bucheli is
Associate Professor, University of Illinois at Urbana-Champaign, 198 Wohlers Hall, Champaign,
IL 61820. E-mail: mbucheli@illinois.edu.
We wish to thank Paul Rhode, the referees, Gareth Austin, Ed Balleisen, Raquel Bernal,
Agustin Casas, Charles Calomiris, Luis Castañeda, Paulo Drinot, Alan Dye, Marcela Eslava,
Nadia Fernández de Pinedo, Paloma Fernández, Price Fishback, Leopoldo Fergusson, Leigh
Gardner, Andrew Godley, Alejandra Irigoin, Andrea Lluch, Luis Fernando Medina, Tomas
Nonnenmacher, Monica Pachón, Marc Prat, Juan Carlos Rodríguez, Alan Rugman, Patricio Saíz,
Fabio Sanchez, Rodrigo Taborda, Randall Walsh, Benjamin Waterhouse, John Wallis, Susan
Wolcott, and participants of the Cliometric Society Meeting (2016), Business History Conference
(2014), World Business History Congress (2014), Economic History Association (2014),
Economic History Society (2014), and workshops at the University of London (2013), University
of Reading (2013), Universidad Autónoma de Madrid (2014), Universidad de Barcelona (2014),
and Universidad de los Andes (2015) for their comments. We are grateful to Price Fishback who
generously shared federal tax and expenditure, and personal income data with us. Luis Felipe
Sáenz and Julián Gómez provided great research assistance.
251
https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press
252 Duran and Bucheli
rents, or both. Nor it is clear how the redistributive political struggles

these interventions originated at the empire were resolved.
This article contributes to our understanding of United States’ subsidy
of American multinationals in informal colonies by examining a para-
digmatic case of American imperialism: The U.S. support for Panama’s
secession from Colombia in 1903 and the subsequent payment of $25
PLOOLRQ LQ UHSDUDWLRQV WR &RORPELD WKDW RSHQHG WKH RLO ¿HOGV LQ WKH
Andean country to the Standard Oil Company of New Jersey (hereafter
SONJ). The case represents a rare window to observe, within an empire,
social decision making over an imperial action. The American govern-
ment preferred to pay reparations to Colombia and indirectly subsidize
SONJ rather than embarking on an opaque military intervention to desta-
bilize Colombia’s government. Thus, we can examine the 1921 Urrutia-
Thomson Treaty senatorial voting patterns and infer the role played by
ideology, constituency interests, and special interest groups.
We document key events of the case study using archival material
that draws on primary sources on SONJ and its subsidiaries, available
at Baker Library (Boston, MA), Glenbow Museum (Calgary, Canada),
Biblioteca Luis Angel Arango (Bogota, Colombia), and United States
and Colombia congressional and government documents. Econometric
analysis of the treaty vote helps us to better understand the U.S. Senate’s
decision to ratify the treaty.
The events we examine start in 1903, when the United States supported
Panama’s secession. Colombian-American relations soured. A decade
of disinterest in Colombia followed until 1914 when the U.S. Cabinet
agreed to pay reparations and thus facilitate the opening of Colombia’s
RLO ¿HOGV WR 621- +RZHYHU ZKHQ WKH 86 6HQDWH IDLOHG WR YRWH RQ
the reparations after SONJ had made the investment to produce crude
oil, Colombia’s government blocked the multinational’s request for a
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7KH DUFKLYDO HYLGHQFH H[SOLFLWO\ FRQQHFW &RORPELDQ JRYHUQPHQW RI¿-
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suggesting the multinational was then induced to lobby the U.S. Senate
in favor of reparations and build a coalition to ratify the treaty.
7RH[DPLQHLIWKHK\SRWKHVLVWKDW621-LQÀXHQFHGVHQDWRUVWREXLOGD
coalition to pass the Colombia treaty is consistent with senatorial voting
patterns, we estimate a senator’s voting decision model. The treaty was
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Colombia, American Oil Interests, and the 1921 UTT 253
social issues and faced low political competition (and whose votes were
plausibly bought); and senators who leaned consistently to prefer govern-
ment intervention on social issues. Opposition came from senators repre-
senting states that were net federal tax contributors and from senators
who consistently opposed government intervention on social issues and
were associated with President Theodore Roosevelt. Having pushed for
Panama’s secession, the former president objected to reparations.
7KH¿QGLQJVFRQWULEXWHWRVHYHUDOOLWHUDWXUHV)LUVWHPSLULFDOWUDGHDQG
economic history literature suggest two rationales for imperial subsidies
to its multinationals: the empire effect and the empire trap.
In the empire effect rationale, an empire may offer subsidies in the form
of common law, language, currency, or lower trade barriers to promote
a positive externality and increase welfare (Mitchener and Weidenmier
2005, 2008; Ferguson and Schularick 2006).
In the empire trap argument, that is more closely connected to our study,
a multinational entering a formal or informal colony faces opportunistic
behavior and resistance from the colony, and in an informal colony it also
faces a risk of expropriation. An empire’s multinational exposed to these
risks has incentives to lobby the imperial government for a subsidy that
UHGXFHVWKH¿UP¶VH[SRVXUH7KHVXEVLG\PD\EHDGLUHFWSD\PHQWWRWKH
multinational, but more frequently has been aid to the colony in exchange
for protection for the multinational assets, or a threat of military action
(Hopkins 1973; Frankema 2010; Maurer 2011). Extending the logic of
this argument, Noel Maurer (2013) has suggested that an empire is likely
to undertake the requested intervention even if the capital exposed to
risk is small and no positive externality for the empire exists. Failure
of political collective action a la Mancur Olson (1965) may exist if the
PXOWLQDWLRQDOLVZHOORUJDQL]HGDQGH[SHFWVWRFRQFHQWUDWHWKHEHQH¿WVRI
intervention, while costs are expected by decentralized and unorganized
groups of individuals who each face a small loss. Thus, a multinational
is likely to gain subsidies even if it is not in the interest of the empire
as a whole—the empire trap. A series of American imperial interven-
tions to protect the property of their multinationals has been documented
DQGLPSOLFLWVXEVLGLHVLQFUHDVHGWKHEHQH¿WHG¿UPV¶FDSLWDOPDUNHWYDOXH
(Dube, Kaplan, and Naidu 2011; Maurer 2013).1
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empire trap hypothesis. The test reveals that collective action failure in
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1
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and foreign investment, 1890–1929.

senators and plausibly bought the votes of others to ratify the Colombian
reparations treaty. But senators generally favoring government interven-
tion in social issues also played an important role. Ideology, as much as
economics, is an important driver of the political process of the empire
WUDSLQWKH8QLWHG6WDWHV7KHLPSRUWDQFHRIWKHUHGLVWULEXWLYHFRQÀLFWLV
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WKDQWKHUHSDUDWLRQSDLGWR&RORPELDWKHUH¿QHUVFDSWXUHGPRVWRIWKHVH
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Second, economic and business history and the international business
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its home empire and that the empire may exercise unchallenged power
over an informal colony and so determine outcomes in these countries.
Particularly in informal empires, the governments of colonies can hold
up multinational companies and leverage negotiated outcomes (Kobrin
1980; Maurer 2011, 2013). Our results qualify further the idea of unchal-
lenged exercise of imperial power and the role of multinationals in the
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colony, induced by the colony’s government via hold up pressure on the
special interest group’s multinational local operations. As far as we are
DZDUHQHLWKHUWKHSRLQWWKDWDQLQIRUPDOFRORQ\¶VJRYHUQPHQWPD\LQÀX-
ence an empire’s policy nor the multinational as a mechanism to do so
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Third, rather than studying either negative imperial interventions like
military interventions or coups (Dube, Kaplan, and Naidu 2011; Berger
et al. 2013) or positive ones like aid or reparations (Ball and Johnson
1996; Alesina and Dollar 2000), we show that these two types of impe-
rial interventions are frequently connected and should be studied as part
of a wider and more dynamic bargaining process between the informal
colony and empire governments.
PANAMA, OIL, SONJ AND THE UNITED STATES

REPARATION TO COLOMBIA
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(UTT). The UTT was a foreign treaty that committed the United States to
pay $25 million in reparations to Colombia in compensation for American
support of Panama’s secession from Colombia in 1903. In this section we
H[DPLQHWKHHYHQWVOHDGLQJWRUDWL¿FDWLRQRIWKHWUHDW\DQGGRFXPHQWWKH

role played by Colombia’s government and SONJ. The historical inter-

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(1935), Fred Rippy (1976), René de la Pedraja (1985), and Richard Lael
DOODFNQRZOHGJHWKDWRLOLQWHUHVWVGLGSOD\DUROHLQUDWL¿FDWLRQEXW
none provides as complete an account as we provide and all overlook the
active role the Colombian government played in holding up SONJ and
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The American Empire and Panama’s Secession from Colombia
As the nineteenth century advanced and the United States expanded

to the west, acquiring California, Philippines, and Guam, and founding
its empire, and China and Japan opened to trade, commercial exchange
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ZDV WKH SUHIHUUHG URXWH IRU D FDQDO WR IDFLOLWDWH $WODQWLF DQG 3DFL¿F
exchange (Maurer 2010, pp. 26–38).
Initially, the United States tried to acquire the necessary land through
diplomatic means. The 1903 Herrán-Hay Treaty offered Colombia a $10
million one-off payment for the right to build and operate the Panama
Canal and, once the canal was operating, an annual payment of $250,000
for 14 years. The treaty was rejected by Colombia’s congress, and in
November 1903 the U.S. government supported the secession of Panama
and subsequently negotiated construction of the canal with Panama’s
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pp. 39–68).
After Panama’s secession the relationship between Colombia and
America soured. Between 1903 and 1913 the only attempt to normalize
Colombian-American relations was the 1909 Root-Cortez agreement
that offered Colombia $2.5 million in reparation to U.S. support to
Panama’s secession. The small amount the treaty involved caused fury
in Colombia’s congress. Rafael Reyes, Colombia’s president, who had
negotiated the agreement, was accused of treason, and under mounting
pressure, resigned and left the country in exile (Bushnell 2007, pp.
234–35).
Global Oil and the Urrutia-Thomson Treaty
The rise of the American empire coincides chronologically with that

nation’s consolidation as a global major oil producer and exporter. By
1910 the United States produced 64 percent of world crude oil, American
entrepreneurs produced 3 percent abroad, and Russia another 21 percent.

The United States consumed about 90 percent of its domestic production

(Fanning 1945, pp. 14–16).
In 1911 the U.S. Supreme Court decided to break up the Standard Oil
+ROGLQJ &RPSDQ\ WKH ZRUOG¶V ODUJHVW FUXGH RLO SURGXFHU DQG UH¿QHU
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ZLGH UH¿QLQJ FDSDFLW\ EXW RQO\ D VPDOO FUXGH RLO SURGXFWLRQ FDSDFLW\
621-KDGWRVWHDOWKLO\ORRNIRUQHZRLO¿HOGVDEURDGEHFDXVHDQWLWUXVW
provisions at state level and federal level inhibited expansion in the
domestic market, and European imperial powers blocked access to their
colonies’ oil reserves (Gibb and Knowlton 1956, pp. 77–78, 87, 106; Pratt
1980). SONJ’s entry into the global oil industry took place as oil became
strategic for both American and British governments in the build-up to
WKH*UHDW:DUDQGFRPSHWLWLRQLQWHQVL¿HG <HUJLQ
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the country’s Supreme Court did not object. The contract was ready for
WKHVHFRQGDQG¿QDOURXQGLQWKHFRQJUHVV1RWLFLQJ3HDUVRQ¶VLQWHUHVWLQ
Colombia’s oil, SONJ decided to compete for the concession by sending
an agent to Colombia to start a press campaign against Pearson’s project.
2Q 6HSWHPEHU SUHVXPDEO\ XQGHU 621-¶V LQÀXHQFH WKH 86
Department of State offered $20 million in reparations to Colombia. A
few days later Pearson withdrew its bid. On 6 April 1914 the United
States and Colombian Cabinets signed the UTT for $25 million in repara-
tion for the loss of Panama (3.5 percent of the U.S. federal expenditure
and 9 percent of Colombia’s gross national production (GNP) in 1913;
an equivalent share of 1913 U.S. gross domestic production (GDP) is $11
ELOOLRQLQ &RORPELDUDWL¿HGWKHWUHDW\RQ-XQHDQGH[SHFWHG
the U.S. Senate to ratify it rapidly (Bucheli 2008).
$UFKLYDOUHVHDUFKKDVUHYHDOHGWKDWGXULQJWKHQH[W¿YH\HDUV621-
intermediaries legalized the oil concession contract, created the Tropical
Oil Company (TROCO) to manage oil production in Colombia, and
invested about $39 million to produce oil. At the same time SONJ
GLUHFWO\YHUL¿HGWKHJUHDWSRWHQWLDORI&RORPELDQRLO¿HOGV7KHLQWHUPH-
diaries transferred TROCO’s ownership to the International Petroleum
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now ready to pump Colombian oil.2
2
Colombia, Ministerio de Minas y Petróleo (1929, no. 8, pp. 90–92); New York Times, 7
January 1920, 20 January 1920, 14 August 1920, 23 August 1920, 8 October 1920; Wall Street
Journal, 23 August 1920; Bell (1921, pp. 120, 128); Gibb and Knowlton (1956, pp. 85, 108, 109).

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center of the country, 300 miles from the Caribbean coast where crude
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or Canada. Thus, SONJ asked the Colombian government for a conces-
sion to build a 300-mile oil pipeline.
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The situation surrounding the pipeline negotiations was complex. On

the one hand, the United States faced inducements to ratify the treaty.
By the time SONJ requested the pipeline contract, the global oil market
had been growing fast. World War I made it clear that oil was a key
input mobilizing armies. American domestic production was growing,
but consumption was growing even faster. The Coolidge Conservation
Commission was still almost a decade away, but the United States was
already developing policies to gain control over oil reserves abroad,
preparing for an eventual war (Denny 1928, pp. 16–18).
On the other hand, the United States also faced important disincen-
tives to ratify the treaty. First, the post-WWI economic boom ended in an
acute recession precisely at the same time SONJ requested the pipeline
contract, 1920–1921 (Bordo and Landon-Lane 2010, pp. 5–7). American
senators had good reasons to think the Colombia reparations could be
better spent domestically.
Second, political opposition to the treaty had a long and strong history.
Between 1903 and 1913, under Republican leadership, the United States
had shown little interest in normalizing relations with Colombia. The Great
War did not prevent President Woodrow Wilson administration’s multi-
year federally funded military interventions in Cuba, Haiti, Veracruz in
Mexico, Nicaragua, and indirect actions to oust General José Bordas in
the Dominican Republic, but consideration of the Colombian treaty in the
Senate Foreign Relations Committee was blocked by Henry Cabot Lodge
and the Republicans until 1917. The committee now sought to reduce
the reparation from $25 to $15 million and to exclude an apology by the
United States, but this did not satisfy Republicans. In 1919, Colombia
softened its position and dropped its demand for a formal apology, expe-
dited SONJ’s acquisition of TROCO’s concession contract and even
enacted legislation favorable to foreign direct investment in oil, all to
appease the opposing Republicans. It was not enough. The Republicans
considered $25 million an extremely high sum. Colombia’s executive
reacted with a decree making subsoil minerals the property of the State.
Colombia’s Constitutional Court quickly declared this unconstitutional

and a decree guaranteeing security to foreign direct investment was intro-

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longer and to impose further conditions. By the beginning of 1921 the
Foreign Relations Committee had not proposed a UTT roll call vote to
the Senate plenary, and Colombia was increasingly frustrated precisely at
the time SONJ was negotiating the pipeline concession.3
Important evidence unearthed during our archival research is a cable
that reveals the decision by Colombia’s government to use the pipe-
line contract to hold up SONJ and press the U.S. Senate to ratify the
treaty. On 25 January 1921, knowing that SONJ could not exploit the
existing TROCO concession without the pipeline, Laureano García
Ortiz, Colombia’s minister of foreign affairs, indicated via a cable Carlos
Urueta, the Colombian minister to the United States that the “[The United
States] … wants approval of [the Urrutia-Thomson] Treaty to depend
on other matters not connected to the original agreement. Unfair, irreg-
XODULVWRKROGUDWL¿FDWLRQRISUHYLRXVO\UHFRJQL]HGULJKWWRVXEVHTXHQW
demands of different interests. Colombia agreed to adapt its legisla-
WLRQWRVXFKRLOLQWHUHVWVXQWLOWKH\ZHUHVDWLV¿HGLQVROHPQGHFODUDWLRQ
by the [U.S.] Senate. Today it pretends to defer and further amend the
treaty. My Government does not threat, it just suspends resolutions on oil
concessions, because public opinion does not allow its approval anymore.
Country tired in their expectation…. These considerations should be
communicated to whom you consider appropriate, especially [SONJ’s
negotiator James] Flanagan.”4
Colombia’s calculation that Flanagan and SONJ could exert some
LQÀXHQFHLQWKH866HQDWHSURYHGFRUUHFW)ODQDJDQKDGVKRZQZLOOLQJ-
ness to lobby the U.S. Senate when early in 1920 he organized a meeting
between Colombia’s minister to the United States and Senators Albert
Fall (R-NM), Henry C. Lodge (R-MA), and Warren Harding (R-OH),
all members of the Foreign Relations Committee. In late 1920, with $39
million of sunk investments in Colombia, Flanagan again lobbied for
WKHUDWL¿FDWLRQRIWKH877WKLVWLPHZLWK6HQDWRUV)DOO/RGJH*LOEHUW
Hitchcock (D-NE), Oscar Underwood (D-AL), and now President-elect
Warren Harding (Gibb and Knowlton 1956, p. 379).
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3
New York Times, 20 February 1917, 19 June 1919, 26, 27 July 1919. Coatsworth (2006, p.
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4
Colombia, Cámara de Representantes (1925, p. 18).

1921, Senator James Reed, D-MO, clearly stated the case put forward by
the oil interests by observing that “… an attorney for these oil compa-
QLHV«FDPHWR:DVKLQJWRQDQGVWDWHGWKDWLIWKHWUHDW\ZDVQRWUDWL¿HG
it would involve the entire oil situation; that the present administration
[in Colombia] might be overthrown and that the oil interests of these
[American] people lost. The substance of the talk was that the treaty must
EHUDWL¿HGLQRUGHUWRSURWHFWWKH>$PHULFDQ@RLOLQWHUHVWV´ &RQJUHVVLRQDO
Record, 67th Congress, 1st Session, p. 314). With the death of former
President Theodore Roosevelt, some Old Guard Republicans decided to
change their position. Senator Lodge, a member of the Foreign Relations
&RPPLWWHH VLQFH DQG FRQVLVWHQWO\ RSSRVHG WR UDWL¿FDWLRQ RI WKH
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prompt additional treaty of amity and commerce with Colombia [presum-
ably the oil pipeline concession] which will improve our opportunities
there making secure the concessions we now have.” He read a letter sent
by Secretary of the Interior Fall, a former senator and member of the
Foreign Relations Committee and consistently opposed to the treaty, now
writing “I have every assurance … short of actual written agreement that
the present Colombian government and prominent Colombians, favoring
WKLVSROLF\ZLOOLPPHGLDWHO\XSRQUDWL¿FDWLRQRIWKHSUHVHQWWUHDW\«
enter into a supplemental treaty [presumably the pipeline concession]
….” (Congressional Record, 67th Congress, 1st Session, pp. 116, 163).
And Senator Porter McCumber, R-ND, another former opponent of the
treaty now stated, “I am voting to stake $25m on the effort of the presi-
dent to secure without an additional donation a supplemental agreement
that will be worth to this country many times that sum” (Congressional
Record, 67th Congress, 1st Session, p. 116).
Progressive Republican senators opposed the UTT. Senator Hiram
Johnson from California, who had been running mate of Theodore
Roosevelt for the Progressives during the 1912 election, asked in his
congressional speech “Why do we have $25,000,000 to squander
LQ WKH ¿UVW DFW WKDW D 5HSXEOLFDQ DGPLQLVWUDWLRQ GRHV´ DQG GHQRXQFHG
Republicans who had changed their mind asking “tell me when the
blackmail demand shed its awful outer garment and became a rosy-hued
request” (Murphy 2013, p. 569). Senator William Kenyon from Iowa
characterized Colombia’s pressure as blackmail and observed the political
and economic opportunity cost the treaty implied when he indicated, “I
wonder what these gentlemen who have raised their voice so loudly about
the [advantages of the UTT for the United States] economy are going to
say when the soldier bonus bill comes here, and they have the record
of voting away $25 million in a blackmail proposition” (Congressional

Record, 67th Congress, 1st Session, p. 472). Senator George Norris from
Nebraska, accepted that Roosevelt and the American government were
at fault during the secession of Panama, but thought, “let the oil, rather
than the Treasury of the United States, pay for the smiles we are trying
to get” (Murphy 2013, p. 569). Senator William Borah from Idaho, after
confessing to Arthur H. Vandenberg, editor of the Grand Rapids Herald,
that “We must strike fast and strike hard for the lobbying behind this
thing is simply stupendous,” prepared a roll call vote amending the treaty
by absolving the United States for aiding Panama’s secession, but this
was defeated (Murphy 2013, p. 569). On 20 April 1921 the UTT was
UDWL¿HG
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to the Andian Corporation in 1923.5 Andian’s ownership was trans-
ferred to SONJ’s subsidiary International Petroleum Company in 1925,
centralizing production and transportation operations. The pipeline was
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on 3 July 1926. By 1928, Colombia was the world’s eighth largest oil
producer.6 Between then and the end of SONJ’s concession in 1951, the
multinational controlled almost the totality of Colombian oil exports and
production (Bucheli 2008, p. 80). Colombia could not change the terms
RIWKHFRQWUDFWZLWK621-DIWHUWKH877UDWL¿FDWLRQ7KHPLOOLRQZDV
paid between 1923 and 1926, most of it after the 1923 Andian concession
contract was awarded.7 This assured that the deal the U.S. Senate voted
for was completed before most money was paid.
7+(85587,$7+2062175($7<927($1'7+(2,/,17(5(676
The archival evidence suggests that SONJ formed a coalition of oil

LQWHUHVWVDQGLQÀXHQFHGUDWL¿FDWLRQRIWKH877:HH[DPLQHLIWKLVYLHZ
is consistent with the quantitative evidence on the treaty roll call vote.
The President of the United States has the power to ratify an interna-
tional treaty only after the Senate has advised and consented to do so. A
treaty is considered by the Senate after the President or a senator request.
In both cases, the request is channeled to the Senate’s Foreign Relations
Committee, which examines the proposal and decides whether to take a
5
Colombia, Cámara de Representantes (1925, pp. 27, 41), Colombia, Ministerio de Minas y
Petróleo (1929, vol. 2, no. 8, pp. 99–110), Gibb and Knowlton (1956, pp. 378–80), Rippy (1976,
p. 121), de la Pedraja (1985, pp. 191–93).
6
Oil and Gas Journal, 22 January 1925, p. 22, 5 February, p. 120, 7 May, p. 68; Gibb and
Knowlton (1956, pp. 379–80, p. 659); Petroleum Facts and Figures, 1929, p. 4
7
Colombia, Ministerio de Hacienda, Memoria de Hacienda (1926).

plenary vote. One round of plenary debate, a roll call vote, and two-thirds
positive votes are required to pass the proposal (U.S. Senate Committee
of Foreign Relations 2000, p. 20).
The 20 April 1921 UTT roll call was voted on by 88 senators, which
required at least 59 senators to vote positively to pass the treaty, and in
fact 69 voted to ratify it. Democrats, the Senate minority, supported rati-
¿FDWLRQE\SHUFHQWZKLOH5HSXEOLFDQPDMRULW\E\SHUFHQW
:DVWKLVELSDUWLVDQPDMRULW\LQÀXHQFHGE\621-DQGWKHRLOLQWHUHVWV"
6HQDWRUVPRVWOLNHO\WREHLQÀXHQFHGZHUHIURPVWDWHVZKHUH621-KDG
operations. SONJ operated in ten states, and all but two of those senators
(who abstained) supported the treaty, 18 of the 59 votes necessary to pass
the treaty.8
7KH LQWHUHVW RI RWKHU RLO UH¿QHUV ZDV DOLJQHG ZLWK WKDW RI 621-
Colombia’s entry into the U.S. crude oil market was expected to make
the supply more elastic, pressing equilibrium prices down. Since crude
RLOUHSUHVHQWHGDERXWSHUFHQWRIWKHDYHUDJHXQLWFRVWRIUH¿QHGSURG-
XFWVDQGWKHLQGXVWU\ZDVFRPSRVHGE\UHJLRQDOROLJRSROLHVRLOUH¿QHUV
would reap substantial gains from crude oil price reductions and would
QRWSDVVWKHVHWR¿QDOFRQVXPHU 2OPVWHDGDQG5KRGH+RSNLQV
1927; U.S. Census 1921, Vol. Manufactures, p. 762).
,QSULQFLSOHWKHFRVWVWUXFWXUHDQGSULFLQJEHKDYLRURIUH¿QHUVLPSO\
WKH\ZRXOGEHQH¿WIURPWKHWUHDW\ZKLOHFUXGHRLOSURGXFHUVZRXOGORVH
via a drop in the output price. However, if there is a larger absolute level
RISUR¿WWREHPDGHLQUH¿QLQJFRPSDUHGWRWKHORVVLQFXUUHGLQSURGXF-
WLRQ DQG LI WKH ¿UPV SURGXFLQJ FUXGH RLO DQG RLO GHULYDWLYHV DUH LQWH-
JUDWHGLWLVSRVVLEOHWKDWWKHFRQÀLFWEHWZHHQFUXGHRLOSURGXFHUVDQGRLO
UH¿QHUVPD\LQIDFWEHLQWHUQDOL]HGWRDODUJHH[WHQWZLWKLQ¿UPV,QWKLV
case the entire industry would support the treaty.
Although we are not aware of contemporary systematic data on
YHUWLFDO LQWHJUDWLRQ LQ WKH RLO LQGXVWU\ DFURVV VWDWHV VLJQL¿FDQW H[DP-
ples do abound. For instance, most of the “baby standards” companies
the Supreme Court of the United States created in the 1911 break-up
of Standard Oil Holding Company are important and relevant examples
of vertical integration (Hidy and Hidy 1955). The major oil companies
LQWHJUDWHGSURGXFWLRQDQGUH¿QLQJ,QPDMRUVLQWHJUDWHGDERXW
SHUFHQW RI 86 SURGXFWLRQ DQG SHUFHQW RI UH¿QHG SURGXFWV 86
Congress 1941, p. 51).
The U.S. Census (1921, Vol. Mines, 28, Vol. Manufactures, p. 758)
UHSRUWV WKDW VWDWHV SURGXFHG FUXGH RLO UH¿QHG RLO DQG D WRWDO RI
8
The two abstaining senators were from Oklahoma and West Virginia.

SURGXFHGRUUH¿QHGRLO$VVXPLQJWKHRLOFRPSDQLHVZHUHVXFFHVVIXO
LQFRQYLQFLQJWKHLURZQVHQDWRUVWRYRWHIRUUDWL¿FDWLRQ\LHOGVDWRWDORI
58 votes, one fewer than the minimum two-thirds necessary to ratify the
treaty. In fact, 45 of the 53 senators from these states who participated in
the UTT roll call did vote to support the treaty. A vertically integrated oil
LQWHUHVWLQÀXHQFHGPDQ\VHQDWRUVEXWWKLVLVVWLOOQRWHQRXJKWRH[SODLQ
UDWL¿FDWLRQ
:+$7(/6(,1)/8(1&('6(1$7256725$7,)<7+(75($7<"
We now examine the Senate vote in a more exhaustive manner and

LGHQWLI\RWKHULQÀXHQFHVRQVHQDWRUVZKRUDWL¿HGWKH877DQGGHYHORS
an econometric approach.
Consider the 88 senators in the 67th U.S. Congress who voted on the
UTT, i=1, … 88.9 Each senator i decides to either support (vis=1) or to
oppose it (vis=0). Senator i preferences are based on his ideology and the
probability of reelection. In turn, the probability of reelection depends
on his ability to convince his constituency that his votes follow their
interests and special interest contributions to fund his political activities
(Snyder 1991).
Assuming a senator’s preferences follow a random utility model and
a simple linear functional form, it is possible to use a linear probability
model to estimate the following senatorial choice equation (Heckman
and Snyder 1997):
Pr(vis = 1) = Pr (V1ID1i + V2ID2i + F1 CIs + F2 SIPs + F3 SIRs (1)

>ε 1
i
ε )
0
i
where ID is the ideology of senator i, CI is the state s constituency interest,

SIP is the contribution to senator i made by the crude oil producer special
interest in state s, and SIR LV WKH FRQWULEXWLRQ RI WKH RLO UH¿QHU VSHFLDO
interest group.
Senator choice, vis LV PHDVXUHG ZLWK WKH 877 UDWL¿FDWLRQ YRWH GDWD
collected by ICSPR U.S. Congressional Historical Statistics. Senator
LGHRORJ\LVFRPSOH[DQGGLI¿FXOWWRPHDVXUH:HXVHWKH:1RPLQDWH
scores estimated by Keith Poole and Howard Rosenthal (1997) (updated
on voteview.com) as a rough proxy to senator ideology. The W-Nominate
9
The 67th Congress at the time of the UTT roll call vote had 96 senators. One each from
Florida, Iowa, Michigan, Montana, Oklahoma, Tennessee, Vermont, and West Virginia preferred
to abstain.

score estimates the typical position of each senator on two dimensions

of preference over government intervention using senators’ votes during
DJLYHQ&RQJUHVV7KH¿UVWGLPHQVLRQVFRUHW1i, measures the typical
position of senator i on government intervention in economic issues. The
second dimension score, W2i, measures the typical position of senator i
RQJRYHUQPHQWLQWHUYHQWLRQLQVRFLDOLVVXHV(DFKGLPHQVLRQLVGH¿QHG
between –1 and 1. The lower scores indicate preference for no interven-
tion, while higher values indicate preference for intervention. Lower
DQG KLJKHU VFRUH OHYHOV UHÀHFW VHQDWRULDO FRQVLVWHQW FKRLFH DJDLQVW RU
IRU JRYHUQPHQW LQWHUYHQWLRQ ZKLOH VFRUH OHYHOV FORVH WR PD\ UHÀHFW
LGHRORJLFDODQGQRQLGHRORJLFDOLQÀXHQFHVRQYRWLQJSDWWHUQV:HH[SHFW
senators supporting government intervention to favor the UTT and there-
IRUHDSRVLWLYHFRHI¿FLHQWDVVRFLDWHGWRW1 and W2.
Constituency interests, CIs, are measured by the contribution a single
state sPDNHVWR¿QDQFLQJWKHIHGHUDOJRYHUQPHQW6WDWHVWKDWSD\PRUH
federal taxes than they receive in federal expenditure should be more
likely to oppose the use of federal taxes to pay reparation to a third and
unrelated party like Colombia. Data on federal taxes and expenditure by
state is available after 1922. The ranking of the state ratio of federal taxes
over federal expenditure in 1922 is used to proxy constituency interests,
CIs. We assume that the ranking of net federal taxes remained stable
between 1920 and 1922.10
The contribution of special interest groups to senator i is determined
by the potential gains or losses of the group under the policy interven-
tion considered. How much the oil interests expected to lose or gain once
the UTT was passed determines the maximum contribution the oil inter-
ests were willing to make to senator i. For instance, crude oil producers
should have expected to lose. The expected losses for crude oil producers
are measured by the expected producer surplus and subsequent price
drop with the entry of Colombia’s crude oil onto the U.S. market. We
cannot measure the expected producer surplus loss accurately, but it must
have been roughly proportional to the value of crude of oil production
in state s. Presumably, the larger the oil production in state s, the greater
WKHH[SHFWHGORVVDQGWKHKLJKHUWKHVSHFLDOLQWHUHVWLQYHVWPHQWWRLQÀX-
ence state s senators to oppose to the treaty. From the perspective of
senator i, all other things being equal, the higher the share of crude oil
production in the state s economy, the greater the likely contributions
from oil producers relative to other special interests in the state and the
10
Estimated marginal effects for CIs are qualitatively identical to those estimated by using the
ratio of state federal taxes over expenditure. Data was kindly provided by Price Fishback.

PRUHLQÀXHQFHRLOSURGXFHUVKDYHRQKLVYRWHUHODWLYHWRKLVLGHRORJ\
and constituency interests. Thus, the share of crude oil production in the
value of overall production in state s can be a proxy for the oil producers’
special interests contributions, SIP.
5H¿QHUVH[SHFWHGWRJDLQIURPWKH877VLQFHWKHSULFHRIWKHLUNH\
input was expected to fall. Following a logic analogous to that approxi-
mating SIPUH¿QHUV¶VSHFLDOLQWHUHVWFRQWULEXWLRQV SIR, use the share of
FUXGHRLOFRQVXPSWLRQLQUH¿QLQJLQVWDWHs as a proxy. Data for crude
RLOSURGXFHUDQGUH¿QHUVSHFLDOLQWHUHVWVZDVGUDZQIURPWKH86
FHQVXV 7KH GH¿QLWLRQ DQG VRXUFHV RI DOO YDULDEOHV XVHG LQ WKH HFRQR-
metric analysis and its descriptive statistics are included in Appendix
Tables 1 and 2.
7KH,QÀXHQFHRI2LO,QWHUHVWVRQ9RWLQJ3DWWHUQV
The baseline results of the econometric exercise are presented in Table

0RGHO VSHFL¿FDWLRQV LQ FROXPQV DQG DUH HVWLPDWHV RI WKH
LQÀXHQFH RI RLO SURGXFHUV DQG UH¿QHUV LQWHUHVWV VHSDUDWHO\ RQ YRWLQJ
SDWWHUQV 6SHFL¿FDWLRQV LQ FROXPQV DQG DUH HVWLPDWHV RI WKH
LQÀXHQFHRIYHUWLFDOO\LQWHJUDWHGRLOSURGXFHUVDQGUH¿QHUV3URGXFHUV¶
DQGUH¿QHUV¶LQWHUHVWVDUHVXPPHGXSLQWRRQHYDULDEOHWRSUR[\IRUYHUWL-
FDOO\LQWHJUDWHGRLOLQWHUHVWV,IWKHFRHI¿FLHQWVIRUWKHGLVLQWHJUDWHGYDOXH
FKDLQVHJPHQWVDUHVWDWLVWLFDOO\VLJQL¿FDQWZKLOHWKDWRIWKHLQWHJUDWHGRLO
interest is not, this is interpreted as evidence that vertical integration did
not play a major role in explaining voting patterns. If a contrary pattern
is observed, it is interpreted as evidence that vertical integration did play
DQLPSRUWDQWUROHLQLQÀXHQFLQJVHQDWRUV¶GHFLVLRQV
6SHFL¿FDWLRQ LQ FROXPQ SUHVHQWV WKH HVWLPDWHV IRU SURGXFHUV¶ DQG
UH¿QHUV¶LQÀXHQFHRQYRWLQJSDWWHUQV7KHHVWLPDWHVIRUSURGXFHUVKDYH
WKH H[SHFWHG QHJDWLYH VLJQ DQG IRU UH¿QHUV WKH H[SHFWHG SRVLWLYH VLJQ
EXWRQO\WKHHVWLPDWHIRUUH¿QHUVLVVLJQL¿FDQW6SHFL¿FDWLRQLQFROXPQ
SUHVHQWVWKHHVWLPDWHIRUWKHLQÀXHQFHRIDQLQWHJUDWHGRLOLQWHUHVWZLWKLQ
each state. The estimate has the expected positive sign and is statistically
VLJQL¿FDQWDWWKHSHUFHQWOHYHO$QHVWLPDWHRILPSOLHVWKDWDRQH
standard deviation (0.0493) increase in the share of crude oil production
DQGUH¿QLQJFUXGHRLOFRQVXPSWLRQLQDVWDWH¶VHFRQRPLFDFWLYLW\OHDGV
to a 5.8 percent increase in the likelihood that a given senator voted to
ratify the UTT.
6SHFL¿FDWLRQV LQ FROXPQV DQG LQFOXGH WKH LQÀXHQFH RI VHQDWRUV¶
position on government economic and social intervention and constitu-
ency interests on voting patterns. The estimates for the oil interest in

TABLE 1
INFLUENCE OF OIL INTERESTS ON UTT VOTING PATTERNS

6SHFL¿FDWLRQ (1) (2) (3) (4) (5) (6) (7) (8)
Dependent Variable Ratify Ratify Ratify Ratify Ratify Ratify Ratify Ratify
Crude –0.40 0.90 1.64 2.47
(1.17) (0.94) (1.42) (7.65)
5H¿QLQJ 3.37* 2.36 1.18 1.82
(1.77) (1.84) (2.23) (21.3)
Oil interest 1.19** 1.52*** 1.45** 2.32*
(0.49) (0.56) (0.66) (1.30)
W1 0.04 0.04 0.03 0.03 0.02 0.02
(0.04) (0.04) (0.05) (0.05) (0.07) (0.07
W2 0.52*** 0.52*** 0.50*** 0.50*** 0.49*** 0.49***
(0.09) (0.09) (0.09) (0.09) (0.15) (0.14)
Tax ratio –0.004** –0.004** –0.006** –0.006** –0.003 –0.003
(0.002) (0.002) (0.002) (0.002) (0.009) (0.007)
Constant 0.75*** 0.76*** 0.95*** 0.95*** 0.70** 0.70** 0.82*** 0.82***
(0.06) (0.06) (0.06) (0.06) (0.28) (0.28) (0.26) (0.23)
State census controls No No No No <HV <HV No No

6WDWH¿[HGHIIHFWV No No No No No No <HV <HV
Observations 88 88 88 88 88 88 88 88
Adjusted R2 0.003 0.009 0.29 0.29 0.28 0.29 0.28 0.30
F 2.64*** 5.99*** 7.51*** 9.47*** 4.41*** 4.99*** 75.88*** 79.24***
6LJQL¿FDQWDWWKHSHUFHQWOHYHO
Note6HQDWRUVUDWL¿FDWLRQGHFLVLRQUHJUHVVHGRQLQWHUHVWJURXSYDULDEOHV &UXGH5H¿QLQJ2LOLQWHUHVW LGHRORJ\SUR[LHV :DQG: DQGFRQVWLWXHQF\LQWHUHVWV WD[UDWLR 6HH
$SSHQGL[7DEOHVDQGIRUYDULDEOHGH¿QLWLRQV6WDWHFHQVXVFRQWUROVLQFOXGHLQFRPHSHUFDSLWDLOOLWHUDF\RIWHQ\HDUVDQGROGHUVKDUHRIUXUDOSRSXODWLRQDQGVKDUHRIEODFNSRSXODWLRQ
Linear probability model estimates, clustered robust errors are in parentheses.
Sources: See Appendix Table 1.
WKHVHWZRPRGHOVFRQ¿UPWKHLQWXLWLRQWKDWYHUWLFDOLQWHJUDWLRQPD\KDYH
KHOSHGWRDOLJQWKHLQWHUHVWVRIRLOSURGXFHUVDQGUH¿QHUV7KHHVWLPDWHRI
DYHUWLFDOO\LQWHJUDWHGRLOLQWHUHVWLQÀXHQFHLQVSHFL¿FDWLRQLVSRVLWLYH
DQGVWDWLVWLFDOO\VLJQL¿FDQWZKLOHWKHHVWLPDWHVIRUWKHYHUWLFDOO\GLVLQWH-
JUDWHGRLOYDOXHFKDLQLQVSHFL¿FDWLRQLQFROXPQDUHQRWVLJQL¿FDQW7KH
HVWLPDWHRIWKHLQÀXHQFHRIVHQDWRUV¶SRVLWLRQRQJRYHUQPHQWHFRQRPLF
intervention (W1 RQYRWLQJSDWWHUQVLVQRWVLJQL¿FDQWZKLOHWKHHVWLPDWH
IRUWKHLQÀXHQFHRIKLVSRVLWLRQRQJRYHUQPHQWVRFLDOLQWHUYHQWLRQ W2)
LVSRVLWLYHKLJKO\VWDWLVWLFDOO\VLJQL¿FDQWDQGLQFUHDVHVWKHDGMXVWHG5
VXEVWDQWLDOO\7KHHVWLPDWHRIWKHLQÀXHQFHRIFRQVWLWXHQF\LQWHUHVWV WD[
UDWLR LVDVH[SHFWHGQHJDWLYHDQGVLJQL¿FDQWDWSHUFHQW
,QVSHFL¿FDWLRQLQFROXPQDIWHULQFOXVLRQRIWKHVHQDWRUV¶SRVLWLRQRQ
government economic and social intervention and constituency interests,
WKHHVWLPDWHRIYHUWLFDOO\LQWHJUDWHGRLOLQWHUHVWLQÀXHQFHLQFUHDVHVIURP
1.19 to 1.52. A one standard deviation increase in vertically integrated
oil interests leads to an increase of 7.4 percent in the likelihood a given
senator voted to ratify the treaty, while a one standard deviation increase
favoring government intervention in social issues leads to a 22.7 percent
LQFUHDVHLQWKHOLNHOLKRRGWKHVHQDWRUUDWL¿HGWKHWUHDW\$QLQFUHDVHLQWKH
tax ratio so that a state moves from being the 22nd net contributor to being
the 10th highest net contributor (equivalent to a one standard deviation
increase) leads to a 10 percent decline in the likelihood a given senator
UDWL¿HGWKHWUHDW\
)LQDOO\ VSHFL¿FDWLRQV LQ FROXPQV ± LQFOXGH VWDWH FRQWUROV 7KH
PRGHOVFRQ¿UPWKDWSURGXFHUVDQGUH¿QHUVGLGQRWH[HUWRSSRVLQJLQÀX-
ence on the senators; more likely vertically integrated oil interests within
HDFKVWDWHLQÀXHQFHGWKHVHQDWRUV¶YRWHV7KHHIIHFWRIWKHLQÀXHQFHRI
the vertically integrated oil interest is robust to inclusion of state census
FRQWUROVDQGVWDWH¿[HGHIIHFWV7KHHIIHFWRIWKHLQÀXHQFHRIVHQDWRUV¶
position on government social intervention on voting patterns is also
UREXVWWRLQFOXVLRQRIVWDWHFRQWUROV7KHLQÀXHQFHRIFRQVWLWXHQF\LQWHU-
HVWVLVUREXVWWRVWDWHFHQVXVFRQWUROVEXWQRWWRVWDWH¿[HGHIIHFWVSRVVLEO\
a consequence of collinearity.11
9RWH%X\LQJDQGWKH8UUXWLD7KRPVRQ7UHDW\9RWH2XWFRPH
7KHEDVHOLQHVSHFL¿FDWLRQLQ7DEOHUHSUHVHQWVDVLPSOHPRGHO$Q
LPSRUWDQWLQÀXHQFHRQVHQDWRULDOYRWLQJSDWWHUQVWKDWDOVRGHVHUYHVDWWHQ-
tion is plausible vote buying. James Snyder (1991) suggests that a special
11
Unreported logit model results are qualitatively identical to the linear probability model
results.

interest group will focus on buying the votes of legislators who are
slightly opposed to the proposed law, rather than the votes of legislators
who strongly support or oppose the law.
Recall that for the W-Nominate score the lower and higher score levels
UHÀHFWVHQDWRULDOFRQVLVWHQWFKRLFHDJDLQVWRUIRUJRYHUQPHQWLQWHUYHQ-
tion. The range of scores close to 0, the center point on each dimen-
sion, indicate a senator vote is against and for government interven-
tion roughly as frequently. Senators may behave this way for different
reasons. For instance, legislators may be truly indifferent to government
intervention and decide on a case by case basis; or senators may prioritize
their re-election probability in their utility function, and sell their vote
and follow different special interest groups and different positions on
different votes. However, even if a W-Nominate score close to 0 does
QRWDOORZLQIHUULQJGLUHFWO\WKHLGHRORJLFDORUQRQLGHRORJLFDOLQÀXHQFHV
over a senator’s voting pattern, the score does help to identify senators
who swing from one position in one roll call vote to another position
in another vote. Following Snyder’s conclusion, senators with W score
close to 0 represent targets for special interest groups to induce them to
sell their vote.
We use the typical position of a senator on government intervention
in social issues and construct a dummy variable to identify senators who
showed no consistent voting patterns. Since the W2 score ranges from
±WRWKHGXPP\YDULDEOHLGHQWL¿HVVHQDWRUVZKRVHDEVROXWHYDOXHRI
the W2i score is within the top 50th percentile closest to 0 (Indifferent),
the central point of the W2 dimension, indicating senator i choice was
not consistent, was against and for government intervention roughly as
frequently. Senators with W2i VFRUH GH¿QHG DV LQGLIIHUHQW SUHVXPDEO\
face lower utility losses from changing their position, signal their will-
ingness to change their position more frequently, and their votes will be
in high demand by special interest groups.
Additionally, we use electoral competition data to construct an alter-
native indicator of plausible vote buying that does not rely on voting
behavior during the 67th Congress. The vote percentage margin between
the elected senator and the second runner up is measured by the variable
Margin. Senators facing a higher margin and lower electoral competition
¿QGLWOHVVFRVWO\WRGHYLDWHIURPWKHLUFRQVWLWXHQF\LQWHUHVWVWKHLUYRWHV
are cheaper to buy and will be in high demand.
,Q 7DEOH WKH EDVHOLQH PRGHO LQ 7DEOH VSHFL¿FDWLRQ LQ FROXPQ
LV H[SDQGHG WR LQFOXGH WKH HIIHFWV RI YRWH EX\LQJ 7KH ¿UVW UHVXOW WR
KLJKOLJKWLVWKDWDFURVVWKHWKUHH¿UVWVSHFL¿FDWLRQVLQ7DEOHWKHEDVH-
line model estimates for oil interests, senators’ position on government

TABLE 2
,1)/8(1&(2)3/$86,%/(927(%8<,1*21877927,1*3$77(516
6SHFL¿FDWLRQ (1) (2) (3) (4) (5)
Peace with
Dependent Variable Ratify Ratify Ratify Reduce Germany
Oil interest 1.49** 1.52** 1.36** –1.65*** 0.27

(0.58) (0.59) (0.60) (0.61) (0.50)
W1 0.04 0.01 0.03 -0.08* 0.41***
(0.04) (0.05) (0.05) (0.04) (0.05)
W2 0.50*** 0.53*** 0.52*** –0.52*** –0.05
(0.08) (0.09) (0.08) (0.08) (0.10)
Tax ratio –0.004*** –0.004** –0.004*** 0.004*** 0.001
(0.001) (0.002) (0.001) (0.001) (0.001)
Indifferent 0.17** 0.04 –0.12 –0.04
(0.07) (0.09) (0.07) (0.08)
Margin –0.14 –0.33**
(0.12) (0.14)
Indifferent*Margin 0.44**
(0.17)
Constant 0.88*** 0.99*** 0.97*** 0.14* 0.61***
(0.07) (0.08) (0.09) (0.07) (0.09)
Observations 88 88 88 88 88
Adjusted R2 0.33 0.30 0.35 0.32 0.43
F full model=0 10.51*** 7.87*** 9.73*** 11.61*** 13.11***
F Indifferent=Indifferent*Margin=0 8.65***
F W2=oil interest=indifferent=0 15.52*** 0.30
Note 6HQDWRUV UDWL¿FDWLRQ GHFLVLRQ UHJUHVVHG RQ LQWHUHVW JURXS YDULDEOHV &UXGH 5H¿QLQJ 2LO LQWHUHVW
ideology proxies (W1, W2), constituency interests (tax ratio) and plausible vote buying variables (Indifferent,
0DUJLQ 6HH$SSHQGL[7DEOHVDQGIRUYDULDEOHGH¿QLWLRQV/LQHDUSUREDELOLW\PRGHOHVWLPDWHVFOXVWHUHG
robust errors are in parentheses.
intervention in social issues, and tax ratio remain qualitatively identical

DQGUREXVWWRPRGHOVSHFL¿FDWLRQFKDQJHVDVVRFLDWHGZLWKSODXVLEOHYRWH
buying.
1RZIRFXVLQJRQYRWHEX\LQJLQVSHFL¿FDWLRQLQFROXPQWKHEDVHOLQH
model includes the dummy variable for indifferent senators. The estimate
for the IndifferentYDULDEOHLVVWDWLVWLFDOO\VLJQL¿FDQWDWWKHSHUFHQWOHYHO
and positive, with an indifferent senator 17 percent more likely to ratify
WKHWUHDW\7KHHVWLPDWHLVVWDWLVWLFDOO\VLJQL¿FDQWHYHQLIWKHGH¿QLWLRQRI
Indifferent is narrowed down to those senators with absolute value W2i
scores within the top 33th percentile closest to 0.

In column 2 the baseline model now includes the electoral competition

measure. The MarginYDULDEOHLVQRWVWDWLVWLFDOO\VLJQL¿FDQWDQGLVQHJD-
tive, against prior expectation. To explore further this counterintuitive
result, in column 3 we also include the Indifferent variable and the inter-
action term Indifferent*Margin :H ¿QG D GLIIHUHQWLDO HIIHFW EHWZHHQ
indifferent and non-indifferent senators.
The estimate of Margin now captures the effect of electoral competi-
WLRQ IRU QRQLQGLIIHUHQW VHQDWRUV ,W LV QHJDWLYH DQG VWDWLVWLFDOO\ VLJQL¿-
cant. The average non-indifferent senator won his last election with a
29 percent margin and was (0.33*0.29) 9.5 percent more likely to vote
against. This result is in line with the intuition that incumbents tend to face
lower electoral competition, and non-indifferent senators like progres-
sive incumbents, strongly opposed the UTT. An unreported regression
using tenure instead of MarginFRQ¿UPVWKLVLQWXLWLRQ
The estimates of Indifferent and Indifferent*Margin capture the effect
of electoral competition for indifferent senators. The average indifferent
senator won his last election by a 26 percent margin, a similar margin to the
average non-indifferent senator. The effect is the estimate on Indifferent
(0.04) plus the estimate for Indifferent*Margin (0.44*0.26=0.11). The
average indifferent senator faced relatively low electoral competition and
was 15 percent more likely to ratify the treaty. Additionally, the joint F
test for Indifferent and Indifferent*Margin indicates we cannot reject that
the two estimates are different than 0 and an alternative regression using
Indifferent*(Margin-0.26) instead of Indifferent and Indifferent*Margin
LQGLFDWHVWKHHVWLPDWHRQWKLVQHZYDULDEOHLVVWDWLVWLFDOO\VLJQL¿FDQWDW
percent and positive.
Low electoral competition “freed” senators to vote following different
LQÀXHQFHV)RUVHQDWRUVZKRZHUHZLOOLQJVZLWFKWKHLUSRVLWLRQIURPRQH
roll call to another, as electoral competition declined, it was less costly
for them to plausibly sell their vote. For senators who voted consistently
from one roll call to another, as competition declined, it was less costly for
them to follow their views on government intervention in social issues.
Table 2 also includes two robustness tests. First, Senate also voted
and rejected an alternative text for the Treaty. The only difference with
WKHWH[W¿QDOO\UDWL¿HGZDVWKDWWKHYDOXHRIUHSDUDWLRQZHQWGRZQIURP
$25 to $15 million. We expect this vote tested the strength of the coali-
tion to ratify the Treaty. Certainly this bill should have been preferable
to all American parties: the same effects in the crude oil market would
EH REWDLQHG DW D ORZHU ¿VFDO FRVW 2QO\ &RORPELD ZRXOG ORVH LI WKLV
DOWHUQDWLYHWH[WZDVUDWL¿HG,QFROXPQWKHHVWLPDWHVRIWKHLQÀXHQFH
of Oil interests and W2 DUH VWDWLVWLFDOO\ VLJQL¿FDQW DQG FKDQJH VLJQ WR

negative; the F test indicates the joint hypothesis that Oil interests, W2,
and Indifferent are equal to 0 can be rejected. Thus, the coalition that
UDWL¿HGWKH7UHDW\ZDVDVWURQJRQHQRWHDV\WREUHDNXSDQGDFWHGWR
oppose the alternative Treaty text. It preferred to favor Colombia than
American taxpayers.
Second, in a placebo test, when we use the same set of independent
variables that explain the UTT vote to explain an entirely different Senate
YRWHWKHHVWLPDWHVRIWKHVHYDULDEOHVVKRXOGQRWEHVLJQL¿FDQW9DULDEOHV
QRWVLJQL¿FDQWLQWKHEDVHOLQHPRGHOPD\EHVLJQL¿FDQWDQGFRQWULEXWH
importantly to explanatory power. This test can help to rule out the possi-
ELOLW\WKDWWKHFRDOLWLRQWKDWUDWL¿HGWKH877ZDVLQIDFWDQH[WHQVLRQRID
broader coalition based over a larger set of issues and roll call votes during
the 67th Congress. Less than 10 percent of all roll calls voted during the
67th Congress were performed by at least the same 88 senators and six of
these were foreign treaties. Column 5 presents results for the roll call vote
to sign peace with Germany. The individual estimates of oil interest, W2,
and IndifferentDUHQRWVLJQL¿FDQWDQGWKH)WHVWVIRUZKHWKHUWKHVHWKUHH
HVWLPDWHVDUHGLIIHUHQWIURPLVDOVRQRWVLJQL¿FDQW7KHWKUHHYDULDEOHV
representing the coalition that passed the UTT treaty were unlikely to
LQÀXHQFHWKHYRWHRQSHDFHZLWK*HUPDQ\6LPLODUUHVXOWVDUHREVHUYHG
IRUWKHRWKHU¿YHIRUHLJQWUHDWLHV7KXVLWLVXQOLNHO\WKHFRDOLWLRQWKDW
passed the UTT represented a broad coalition over the 67th Congress.
Table 3 summarizes the econometric evidence on the oil coalition.
Lines 1 and 2 indicate that 88 senators participated in the roll call vote
DQGYRWHGWRUDWLI\WKH8777KH¿JXUHVLQOLQHVWRRIWKHWDEOH
DUHWKHQXPEHURISUHGLFWHGYRWHVVXSSRUWLQJUDWL¿FDWLRQDVVXPLQJWKDW
when the probability that senator i votes yes is 0.5 or higher he should
KDYHYRWHGWRUDWLI\²WKHVWDQGDUGDVVXPSWLRQLQFRQVWUXFWLQJFODVVL¿FD-
tion tables for binary data models. Line 3 indicates the model in Table 2
VSHFL¿FDWLRQLQFROXPQSUHGLFWVWKDWVHQDWRUVVKRXOGKDYHYRWHGWR
ratify the UTT, on the basis of their position in W1 and W2 alone—the
HVWLPDWHGFRHI¿FLHQWRQW1 times the score of senator i on W1 plus the
HVWLPDWHGFRHI¿FLHQWRQW2 times the score of senator i on W2 is higher
WKDQIRUVHQDWRUV)RUVSHFL¿FDWLRQLQFROXPQLWLVVHQDWRUV
Thus, if the UTT decision had been based solely on the senators positions
in W1 and W2WKHPRGHOVVXJJHVWLWVKRXOGKDYHEHHQUDWL¿HGEHFDXVH
the predicted positive votes were higher than 59.
/LQH LQGLFDWHV WKH VLPXOWDQHRXV LQÀXHQFH RI W1 and W2, and tax
FRQVLGHUDWLRQV RQ YRWLQJ SDWWHUQV 0RGHO VSHFL¿FDWLRQ LQ FROXPQ
predicts that 55 senators should have voted to ratify, while column 2,
also including the negative effect of the Margin estimate, predicts 58.

TABLE 3
180%(52)6(1$72567+$7927('$1'35(',&7('725$7,)<877
0RGHOVSHFL¿FDWLRQLQ7DEOH (1) (3)
Actual votes
(1) Senators that voted UTT 88 88
(2) Senators that voted UTT yes 69 69
Predictions
(3) W1+W2 predicts yes 70 73
(4) W1+W2 + Tax ratio + Margin predicts yes 55 58
::7D[UDWLR2LOLQÀXHQFHSUHGLFWV\HV 68 69
(6) W1+W2 predicts no 18 15
::2LOLQÀXHQFHSUHGLFWV\HV JLYHQ::SUHGLFWVQR 3 3
Note 0RGHO VSHFL¿FDWLRQ DQG FRUUHVSRQG WR PRGHO VSHFL¿FDWLRQ DQG LQ 7DEOH
UHVSHFWLYHO\ 0RGHOV ZHUH UHHVWLPDWHG XVLQJ UHVFDOHG YDULDEOH YDOXHV WR ¿W LQWHUYDO DQG
produce predicted values in 0-1 interval. W1 + W2 predicts yes is the number of senators for
ZKLFK WKH VXP RI SUHGLFWHG SUREDELOLW\ FRHI¿FLHQW HVWLPDWH : W1i FRHI¿FLHQW HVWLPDWH
W2*W2i) is higher than 0.5. W1 + W2 + Tax ratio predicts yes is the number of senators for which
WKHVXPRIWKHSUHGLFWHGSUREDELOLW\ FRHI¿FLHQWHVWLPDWH: W1iFRHI¿FLHQWHVWLPDWH: W2i
FRHI¿FLHQWHVWLPDWHWD[UDWLR tax ratioiFRHI¿FLHQWHVWLPDWHPDUJLQ Margini) is higher than
::7D[2LOLQÀXHQFHLVWKHQXPEHURIVHQDWRUVIRUZKLFKWKHVXPRISUHGLFWHG
SUREDELOLW\RIWKHIXOOPRGHO H[FOXGLQJFRQVWDQW LVKLJKHUWKDQ2LOLQÀXHQFHLVWKHVXPRI
predicted probability by estimates of oil interest and vote buying, either indifferent or indifferent
plus indifferent*margin. A senator was assumed to vote yes if predicted probability was 0.5 or
KLJKHUDVLWLVFXVWRPDU\WRGHYHORSFODVVL¿FDWLRQWDEOHVIRUELQDU\RXWFRPHHFRQRPHWULFPRGHOV
2QFHWKHQHJDWLYHLQÀXHQFHRIDVWDWH¶VIHGHUDOWD[HVFRQWULEXWLRQVDQG
Roosevelt’s legacy on a senators’ voting preference is considered, W1
and W2 should not have been enough to pass the UTT.
Line 5 includes the simultaneous effects on voting patterns of W1
and W2WD[FRQVLGHUDWLRQVDQGWKHRLOLQWHUHVW0RGHOVSHFL¿FDWLRQLQ
column 1 predicts that 68 senators should have voted positively, while
VSHFL¿FDWLRQVLQFROXPQ12 The predictions suggest the oil special
LQWHUHVWLQÀXHQFHGEHWZHHQDQGVHQDWRUVWRWDNHWKHFRDOLWLRQIURP
55 to 68 in column 1 and from 58 to 69 in column 2.
$QRWKHUZD\WRVHHWKHLPSRUWDQFHRIWKHRLOOREE\RQWKH¿QDOUHVXOWRI
the UTT roll call is to examine how many senators should have opposed
it on ideological grounds and how many of these senators are predicted
to have changed their position once the oil special interest is consid-
ered. Line 6 indicates the number of senators predicted to have opposed
12
2IWKHVHQDWRUVPRGHOVSHFL¿FDWLRQSUHGLFWVWRKDYHYRWHGWRUDWLI\WKHWUHDW\GLGLQ
IDFWYRWHGWRUDWLI\7KLV¿JXUHIRUVSHFL¿FDWLRQLV

the UTT exclusively on their position against government intervention

on social issues should have been between 18 and 15. However, line 7
suggests that once the effect of the oil lobby is considered, about three of
these senators should have voted positively.13
Overall, Table 2 models suggest that although ideology on its own
certainly mobilized a large group of senators, it was unlikely to have been
VXI¿FLHQWWRUDWLI\WKH877RQFHZHDFFRXQWIRUWKHLQÀXHQFHRI¿VFDO
cost and Roosevelt’s legacy on senatorial voting patterns. The oil special
interest and its plausible vote buying strategy mobilized a substantial
group of senators that likely took the coalition to a size over the minimum
size to pass the UTT. Ideology and the oil coalition were necessary and
VXI¿FLHQWFRPSOHPHQWVWRUDWLI\WKH877
:(/)$5(())(&762)7+(85587,$7+2062175($7<
The archival and econometric evidence examined in the preceding

VHFWLRQVGRFXPHQWVUREXVWHYLGHQFHRIWKHLQÀXHQFHRIRLOLQWHUHVWVRQ
WKHWUHDW\¶VUDWL¿FDWLRQ1RZZHGRFXPHQWWKHHIIHFWVWKHWUHDW\KDGRQ
the American economy.
621-3UR¿WV
621-¶V EHQH¿WV IURP WKH 877 UDWL¿FDWLRQ PD\ EH PHDVXUHG E\ WKH
DGGLWLRQDOSUR¿WVDWWULEXWHGWRWKHH[SORLWDWLRQRI&RORPELDQRLO7KHVH
SUR¿WVDOORWKHUWKLQJVEHLQJHTXDODUHGHULYHGIURPH[WUDFWLQJWUDQV-
SRUWLQJ DQG UH¿QLQJ &RORPELDQ RLO DQG IURP ORZHU SULFHV RQ DOO QRQ
&RORPELDQEDUUHOVRIRLOSURGXFHGDQGUH¿QHG7RHVWDEOLVKWKHPDJQLWXGH
RIDGGLWLRQDOSUR¿WVLWLVQHFHVVDU\WRNQRZWKHFRVWVWUXFWXUHDQGSULFHV
within the vertical supply chain, all indirectly owned by SONJ, but this
information is not available. An alternative is to identify a lower bound of
DGGLWLRQDOSUR¿WVDQGDVVXPHWKDW752&2¶VDQG$QGLDQ¶VSUR¿WVUHÀHFW
621-¶VDGGLWLRQDOSUR¿W,QRUGHUWRHVWLPDWHWKHVHEHQH¿WVZHFDOFXODWH
the net present value (NPV) of TROCO’s and Andian’s operations.
,GHDOO\RQHZRXOGOLNHWRNQRZWKHÀRZVRIFDSLWDOLQYHVWPHQWVDQGQHW
income for both TROCO and Andian to calculate the NPV. Conventional
VRXUFHV IRU WKLV LQIRUPDWLRQ DUH WKH DQQXDO ¿QDQFLDO UHSRUWV RI HDFK
company. These reports are available only for 1936–1938.
The information in these reports indicates that average capital stock
in 1936–1938 was $42.1 million for TROCO and $19.3 million for
In columns 1 and 2, of the three senators predicted to have voted to ratify the treaty although
13
they were ideologically opposed, three did in fact vote to ratify.

Andian.14*LYHQWKHVKRUWSHULRGFRYHUHGE\WKH¿QDQFLDOUHSRUWVZHDOVR
examined print media, which reported that capital subscribed by TROCO
in 1920 was $39 million, presumably to invest in building production
HTXLSPHQWDQGDUH¿QLQJSODQW$QGLDQLVVXHGPLOOLRQLQERQGGHEWWR
¿QDQFHSLSHOLQHFRQVWUXFWLRQLQ±ZKLOHLWVVXEVFULEHGFDSLWDO
was $1 million. Thus, capital stock in the annual reports and the press
seem to be roughly in line.15
7KHDYDLODEOHDQQXDO¿QDQFLDOUHSRUWVLQGLFDWHDYHUDJHDQQXDOQHWHDUQ-
ings of $2 million for TROCO, $7.3 million for Andian.16 Operational net
LQFRPHÀRZVDUHFRQVWUXFWHGE\XVLQJSURGXFWLRQVWDWLVWLFVDQGD¿[HG
GROODU SUR¿W SHU EDUUHO SURGXFHG RU WUDQVSRUWHG 752&2¶V RSHUDWLRQDO
net earnings are estimated as barrels produced per year times the dollar
DPRXQWRISUR¿WSHUEDUUHOSURGXFHG7KHTXDQWLW\RIEDUUHOVSURGXFHG
and transported is calculated with production and export statistics
SXEOLVKHGE\WKH&RORPELDQJRYHUQPHQW7KHSUR¿WSHUEDUUHOSURGXFHG
LVFHQWVFDOFXODWHGDVWKHDYHUDJHSUR¿WSHU\HDU±GLYLGHG
by the average number of barrels produced. Andian’s operational net
earnings are estimated as barrels exported per year times dollar amount
RI SUR¿WV SHU EDUUHO H[SRUWHG 7KH SUR¿W SHU EDUUHO WUDQVSRUWHG LV
FHQWVWKHDYHUDJHQHWSUR¿WSHU\HDU±GLYLGHGE\WKHDYHUDJH
number of barrels transported.
TROCO’s operational net earnings are probably slightly underes-
timated. Since more than 90 percent of its production was exported,
assuming that extraction costs are stable over time, net earnings depend
on the international price. The international prices were $1.13 per barrel
in 1936–1938, slightly below the 1921–1951 period’s average of $1.25.
Andian’s net earnings are roughly accurate as transportation services
experienced stable costs during the period.17
8VLQJWKHFDSLWDOLQYHVWPHQWLQDQQXDOUHSRUWVDVDQLQLWLDO¿[HGFDSLWDO
FRVWWKHHVWLPDWHGQHWHDUQLQJVÀRZVDQGD'RZ-RQHVDYHUDJHDQQXDO
return of 5.6 percent to proxy the discount rate, the NPV for TROCO is
–$25.1 million, for Andian it is $78.2 million, and for SONJ it is $53.1
million. Even if the project had been perceived to be 40 percent more
14
,QWHUQDWLRQDO3HWUROHXP&RPSDQ\DQQXDOUHSRUWV±ZLWKLQIRUPDWLRQVSHFL¿FWR
Tropical Oil Company and National Andian Corporation. Glenbow Museum Archive (Glenbow
hereafter), Imperial Oil Collection.
15
New York Times, 14 August 1920, Oil and Gas Journal, Tulsa, 22 January 1925, 5 February
1925, 7 May 1925.
16
International Petroleum Company Annual Reports, 1936–1938 (Glenbow).
17
3UR¿W LQIRUPDWLRQ FRPHV IURP ,QWHUQDWLRQDO 3HWUROHXP &RPSDQ\ Annual Reports, 1936–
1938 (Glenbow). Barrels produced and transported come from Colombia, Ministerio de Minas y
Petroleo (1944, p. 88) and Santiago (1986, p. 63).

risky than investment in stocks (increasing the discount rate from 5.6 to 8
SHUFHQW WKHSURMHFWZRXOGVWLOOKDYHEHHQH[SHFWHGWREHSUR¿WDEOH
621-¶V 139 LQGLFDWHV WKDW UDWL¿FDWLRQ RI WKH 877 UHVXOWHG LQ DQ
LPSOLFLWVXEVLG\WKDWZDVVPDOOHUWKDQ621-¶VDFFUXHGSUR¿WV7KH86
Senate could have requested that SONJ pay voluntary taxes to compen-
sate for the reparations paid by the United States in 1921.
Winners and Losers
7KH UDWL¿FDWLRQ RI WKH 877 DOO RWKHU WKLQJV EHLQJ HTXDO IDFLOLWDWHG
SONJ crude oil production in Colombia and led to an increase in supply
and a reduction in the equilibrium price for crude oil. In turn, the price
GHFOLQHVKRXOGKDYHDOORZHG$PHULFDQUH¿QHUVWRVDYHRQFUXGHRLOLQSXW
costs.
7RFDOFXODWHKRZPXFK$PHULFDQUH¿QHUVVDYHGZHIROORZDFRQYHQ-
tional social savings approach. The intuition is that had Colombia not
exported crude petroleum to the United States, the crude price should
have been higher. How much higher depends on the price elasticity of
demand. We use a range of plausible price elasticities of demand to esti-
PDWHWKHH[SHQGLWXUHVDYHGE\UH¿QHUVFRPSDULQJDVFHQDULRZKHUHWKH
United States imported Colombia’s oil with another where it did not.
The social savings approach is a conventional tool used by economic
historians to estimate the partial equilibrium welfare effects derived from
the introduction of a product into a market (Fogel 1964; Fishlow 1965).
The main advantage of this approach is its simplicity and small data
requirements. However, the approach focuses on demand and assumes
an inelastic supply with few, if any, alternative producers entering the
market had Colombia’s crude oil not been imported into the United
States. In this case, the use of the social savings approach is appropriate
only after some simple but important institutional considerations are
included in the set-up of the exercise.
)LUVWWKH86FUXGHRLOPDUNHWZDVVHJPHQWHGEHWZHHQWKH3DFL¿FDQG
the eastern and central markets. Crude oil production was located in large
quantities in only a few states (Pennsylvania and West Virginia in the east;
Louisiana, Texas, Oklahoma, Indiana, and Illinois in the central region;
and California in the west) and this created regionally separate markets.
By 1920, railroads and pipelines provided the necessary transport infra-
structure to facilitate intermediation between regional market segments
in the east and the central United States. And once the Panama Canal
ZDVIXOO\RSHQLQFUXGHRLOWUDGHEHWZHHQWKH3DFL¿FFRDVWDQGWKH
eastern and central United States became easier. Price convergence was

DFKLHYHG LQ WKH V %DLQ 0DXUHU DQG <X SS ±
Libecap 1989, p. 835). Thus, we can think of the American crude oil
market as a segmented market for most of the period of analysis, with
&RORPELDQRLOÀRZLQJLQWRWKHHDVWHUQDQGFHQWUDOVHJPHQWRIWKHPDUNHW
6HFRQG LQ WKH V ZKHQ WKH 877 ZDV UDWL¿HG WKH HDVWHUQ DQG
central crude oil market was not only integrated but production operated
in a highly competitive manner. Independently of whether a producer
was part of a major oil company or an independent, both extracted oil
IURPDVSHFL¿FRLO¿HOGDVIDVWDVSRVVLEOHWRUHGXFHWKHQHJDWLYHHIIHFWV
of competition when exploiting a common pool resource. This market
structure dominated the crude oil market until 1933, when it became a
cartel (Libecap 1989). Once the crude oil cartel began effective opera-
tion, import controls were set up in the United States. In turn, the share
of Colombian crude oil exports to the United States declined from an
average of 72 percent in 1926–1933 to 26 percent in 1934 and never
recovered. Thus, we focus our analysis on the social savings up to 1933.
The calculation of social savings assumes a range of price elasticity of
demand between relatively inelastic 0.5 and relatively elastic 5. The U.S.
mean imports of Colombia’s crude oil over 1926–1933 were 11.9 million
barrels per annum (see Table 4 line 1). The eastern and central U.S. mean
crude oil consumption was 699 million barrels per annum. Colombia’s
oil mean market share was 1.72 percent. The Oklahoma crude oil price
was used by the U.S. Bureau of Mines as the reference for the eastern
and central U.S. market segment (U.S. Bureau of Mines, various years).
The mean real Oklahoma price was $1.52 per barrel. The mean price
increase had Colombia’s oil not reached the eastern and central U.S.
market segment ranges from 0.055 to 0.006 dollars per barrel, which
implies that crude oil consumers in this market saved an annual mean
expense ranging from $37 million per annum to $3.7 million. The NPV
of total social savings, 1926–1933, ranges from $243 million if the price
elasticity of demand was 0.5, to $24 million if the price elasticity was
5.0 (see line 8). If the price elasticity of demand was lower than 4.9, the
social savings should have been higher than the $25 million in reparation
WKH8QLWHG6WDWHVSDLG&RORPELDDIWHUUDWL¿FDWLRQRIWKH877
To examine how sensitive this result is, the West Texas price, that
was about one-third lower, is used instead. A lower crude price renders
smaller social savings, ranging from $149 to $14 million (see line 9). If
the elasticity was lower than 2.9, reparations should have been smaller
than social savings. In sum, as long as the price elasticity of demand was
lower than about 3, the total social savings of eastern and central U.S.
UH¿QHUVIURPWKHÀRZRI&RORPELDQRLOVKRXOGKDYHEHHQKLJKHUWKDQWKH

276
TABLE 4
SOCIAL SAVINGS FOR THE UNITED STATES RESULTING FROM UTT
Price Elasticity of Demand 0.5 1.0 2.0 3.0 4.0 5.0
(1) U.S. crude oil imports from Colombia (million barrels per annum) (CM) 11.9 11.9 11.9 11.9 11.9 11.9
(2) East and central U.S. crude oil consumption (million barrels per annum) (CC) 699 699 699 699 699 699
(3) Share of Colombia imports in east and central U.S. consumption (percent) (CM/CC) 1.72 1.72 1.72 1.72 1.72 1.72
Duran and Bucheli

(4) East and central U.S. crude oil price (1921 real price in dollars) (P) 1.52 1.52 1.52 1.52 1.52 1.52
(5) Increase in east and central U.S. price due to exclusion of Colombia imports (percent) 3.44 1.72 0.86 0.57 0.43 0.34
(6) Increase in east and central U.S. prices due to exclusion of Colombia imports (1921 real price in dollars) 0.055 0.028 0.014 0.009 0.007 0.006
(7) Average annual social savings, 1926–1933 (1921 million dollars) 37.0 18.5 9.3 6.2 4.6 3.7
(8) NPV social savings 1926–1933 (1921 million dollars) 243.3 121.6 60.8 40.5 30.4 24.3
(9) NPV social savings 1926–1933 using West Texas prices (1921 million dollars) 149.4 74.7 37.3 24.9 18.7 14.9
Note: Lines (1) to (6) are average value 1926–1933.
Source: (1) 1926–1928 from U.S. Department of Commerce (1930), 1928–1933 from U.S. Bureau of Statistics (various years), and U.S. Bureau of Mines (various
years). (2) U.S. total crude oil runs to stills minus California 1926–1930 from American Petroleum Institute (various years), 1931–1933 from U.S. Bureau of Mines
YDULRXV\HDUV 2NODKRPDFUXGHSHWUROHXPUHDOSULFHIURP86%XUHDXRI0LQHV YDULRXV\HDUV DQG33,$QQXDOVRFLDOVDYLQJV¨3 &&ZLWK¨3
the East and central U.S. crude oil price change due to Colombia’s oil exclusion and CC the east and central U.S. crude oil consumption. (5) = (1/price elasticity of
GHPDQG &0&& SULFHHODVWLFLW\RIGHPDQG ¨3 HODVWLFLW\RIGHPDQG &0&& 3 ¨3 && 1HW3UHVHQW9DOXH
RIÀRZRIVRFLDOVDYLQJV ± 1HW3UHVHQW9DOXHRIÀRZRIVRFLDOVDYLQJV ±XVLQJ:HVW7H[DVFUXGHSULFHLQVWHDGRI2NODKRPDSULFH
UHSDUDWLRQV WKH 8QLWHG 6WDWHV SDLG WR &RORPELD DIWHU UDWL¿FDWLRQ RI WKH
UTT.
Finally, the distribution of social savings within America is an impor-
tant issue. We compare crude oil and oil derivatives prices and provide
a rough indication of the distribution of the gains to the United States
derived from the effects of the treaty.
7KHRLOUH¿QLQJLQGXVWU\ZDVDFRQFHQWUDWHGROLJRSRO\RSHUDWHGE\WKH
oil majors. Thus, it is not possible to use only the market price of crude
RLOIXHORLODQGJDVROLQHWRHVWLPDWHWKHSUHFLVHGLVWULEXWLRQRIEHQH¿WV
Cost, productivity series, and behavioural assumptions, in addition to
price series, are required. This information is not available.
+RZHYHU ZH FDQ GHYHORS D UH¿QLQJ GHULYDWLYHV DJJUHJDWH SULFH
index that we can compare to the Oklahoma crude price index and John
Kendrick’s sectoral productivity statistics and infer a preliminary view on
the distribution of social savings. Figure 1 presents an output weighted
SULFH LQGH[ IRU UH¿QLQJ GHULYDWLYHV FRPSRVHG RI JDVROLQH
fuel oil, and kerosene and an index for the Oklahoma crude oil price.
7KUHHPDLQWUHQGVDUHZRUWKKLJKOLJKWLQJ)LUVWWKH¿JXUHLQGLFDWHVWKDW
crude oil price plunged between 1926 and 1928. Colombia’s petroleum
contributed to this decline, with a market share of more than 2 percent in
the eastern and central U.S. crude oil market segment. The price stabi-
lized at about 50 percent of the 1926 value. The derivatives price index
during the same period also declined, but only to 80 percent of the 1926
OHYHO 7KH UH¿QLQJ LQGXVWU\ FDSWXUHG PRVW RI WKH EHQH¿WV WKH 8QLWHG
States derived from the price decline induced by Colombia’s crude oil.
Second, for the relevant social savings period, 1926–1933, the average
crude oil price index was 56 and derivatives price index was 98. Thus, oil
UH¿QHUVVDYHGDSSUR[LPDWHO\RQHKDOIRIWKHLUFUXGHRLOH[SHQVHVDQGGLG
not pass along any of these savings to oil derivatives consumers, main-
taining the consumer surplus unchanged.
7KLUGWKH¿JXUHVKRZVWKDWDIWHUSULFHVWHQGWRGHFOLQHVORZO\
IRUERWKFUXGHRLODQGUH¿QLQJGHULYDWLYHV$W¿UVWJOLPSVHRQHPD\LQIHU
WKDW ¿QDO FRQVXPHUV EHQH¿WHG IURP GHFOLQLQJ SULFHV IRU FUXGH RLO DQG
UH¿QHGSURGXFWV%XWSURGXFWLYLW\ZDVJURZLQJIDVWHUWKDQRXWSXWSULFHV
were declining. Between 1929 and 1937 crude oil production experienced
DQSHUFHQWWRWDOIDFWRUSURGXFWLYLW\JURZWKZKLOHWKHUH¿QLQJLQGXVWU\
experienced a 25 percent total factor productivity growth (Kendrick
1961, pp. 400, 448). Productivity data suggests that the producer surplus
RIUH¿QHUVJUHZEHFDXVHFUXGHRLOSULFHVGURSSHGDQGSURGXFWLYLW\JUHZ
while for crude oil suppliers the producer surplus grew because produc-
tivity was growing faster than the crude oil price declining.

140
120
100
80
60
40
20
0
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
Oklahoma crude oil Oil refining derivates
FIGURE 1
INDEX NUMBERS FOR CRUDE OIL AND OIL REFINING DERIVATIVES PRICES
(1926=100)
Source&UXGHRLOSULFH2NODKRPDIURPWKH86%XUHDXRI0LQHV YDULRXV\HDUV 2LOUH¿QLQJ

derivatives is output weighted average price in cents per gallon of U.S. motor oil gasoline
2NODKRPD EXQNHUIXHORLO 1HZ<RUN DQGNHURVHQH &KLFDJR IURPWKH86%XUHDXRI0LQHV
6HULHVGHÀDWHGXVLQJ33,
In sum, the oil derivative consumer lost due to the introduction of

the treaty. The consumer’s surplus did not increase, but she/he paid the
taxes used to pay for Colombia’s reparation. Indirectly, the oil deriva-
WLYHFRQVXPHUVXEVLGL]HGWKHRLOUH¿QHUV2LOGHULYDWLYHFRQVXPHUVZHUH
LQGLYLGXDOVDQGDOVR¿UPVDQGERWKDOVRSDLGWKHWD[HV,QIDFWE\
DERXWSHUFHQWRIIHGHUDOWD[HVFDPHIURP¿UPV¶LQFRPHDQGSUR¿WV
5H¿QHUVLQFOXGLQJ621-FDSWXUHGLPSRUWDQWVDYLQJVLQFUXGHRLOLQSXW
expenses; the producer surplus increase was larger than the reparations
paid to Colombia. Crude oil producers compensated their losses with
IDVWSURGXFWLYLW\JURZWK2YHUDOOWKH8QLWHG6WDWHVZRQEXWWKHUH¿QHUV
FDSWXUHGPRVWJDLQVZKLOHLQGLYLGXDOVDQGQRQRLO¿UPVZHUHPRVWOLNHO\
less well off.
CONCLUSION
The use of power in the allocation of international trade is an important

issue. In this article we examine an event that provides a rare window
WR H[SORUH WKH LQÀXHQFH RI VSHFLDO LQWHUHVWV RQ DQ HPSLUH¶V SRZHU DQG

informal colonial policy in the context of informal commercial imperi-

alism under democratic rule.
The relations between Colombia and the United States strained for a
decade after the former supported the secession of Panama in 1903. A
FRQÀXHQFHRIHYHQWVWKDWLQFOXGHGWKHGLVFRYHU\RIRLOLQ&RORPELDWKH
global competition for oil by economic empires, and SONJ’s need to
¿QGVRXUFHVRIFUXGHDEURDGEURXJKWQHZLVVXHVWRWKHQHJRWLDWLRQVIRU
reparations and created a new bargaining setting. In 1913 SONJ used
the potential for reparations to win a concession on Colombian oil over
competing British investors. In 1921 Colombia used the $39 million of
SONJ’s sunk investments in its territory and future access to Colombia’s
RLOUHVHUYHVWRKROGXS621-DQGLQGXFHWKH¿UPWRUHSUHVHQW&RORPELDQ
interests in the empire. This led SONJ to lobby the U.S. Senate and orga-
nize a supermajority coalition. A large group of senators representing oil
SURGXFLQJDQGUH¿QLQJVWDWHVVHQDWRUVZKRZHUHLQGLIIHUHQWWRWKHWUHDW\
vote or faced little political competition, and senators favoring govern-
ment intervention in social issues, all joined SONJ to ratify the treaty. As
a result, Colombia reduced by $25 million the net transfer of resources
WRWKHHPSLUHUHVXOWLQJIURPWKHORVVRI3DQDPD621-DQGRWKHUUH¿QHUV
JDLQHG VXEVWDQWLDO SUR¿WV HYHQ KLJKHU WKDQ WKH PLOOLRQ LPSOLFLW
American subsidy), and the United States won on aggregate. However,
WKH DYHUDJH $PHULFDQ UH¿QLQJ GHULYDWLYH FRQVXPHU DQG WD[SD\HU LQGL-
YLGXDODQGQRQRLO¿UPZDVSUREDEO\OHVVZHOORIIDIWHUWKH877
Our results contribute to the literature on commercial imperialism. First,
ZHGHYHORSDPHWKRGRORJ\WRSURYLGHWKH¿UVWTXDQWLWDWLYHHYLGHQFHIRU
0DXUHU¶V HPSLUHWUDSK\SRWKHVLV&OHDUO\ZH¿QGWKDWDQ2OVRQ
(1965) type of mechanism that sorted out distributional struggles over
WKHEHQH¿WVDQGFRVWVRILPSHULDODFWLRQVZDVLQSODFHDQGWKHRXWFRPH
ZDVXQHTXDOGLVWULEXWLRQ²WKHUH¿QHUVJDLQHGDWWKHH[SHQVHRIWKH¿QDO
FRQVXPHUVDQGWKHWD[SD\HUV+RZHYHUZHDOVR¿QGWKDWDQ2OVRQW\SH
mechanism may need the support of ideology to coordinate collective
action and that the empire trap politics may not necessarily imply a net
welfare loss for the empire. We hope our methodology can serve as a
model for other studies testing or advancing the empire trap hypothesis
for other countries or industries.
Second, the case shows that an informal colony can hold up a special
interest’s multinational and induce the special interest to take action
within the empire’s political process to represent the informal colony
interests. By following this strategy, a country victim of an imperialist
DFWLRQPDQDJHGWRUHGXFHWKHORVVHV7KLV¿QGLQJKLJKOLJKWVWKDWLQIRUPDO
colonies may have more leverage in their relation with the empire than

previously acknowledged and that special interests have a choice when

their multinational faces informal colony hold-up. Sometimes the special
interest might prefer to ask the imperial government to repress or control
the colonial government through the exercise of political or military
power, while at other times, as in the present case, the special interest
might prefer to push for the colony’s interests within the empire. The
determinants and analysis of the special interest’s decision to either side
with the colony or ask the empire to repress it is an important topic for
future further research.
Third, the case also highlights that negative and positive imperial
actions are frequently connected. Imperial invasions, coups, and threats
should be studied in connection with previous and future reparations and
aid. In Colombia the threat of military action leading to Panama’s seces-
sion was followed, after almost two decades, by $25 million in repara-
tions, while in the case of Iran, American economic aid increased from
$11 million to almost $600 million after the 1951 coup. In Guatemala,
American economic aid increased from $1.4 million to more than
$70 million after the 1954 coup, and American economic aid to Chile
increased from $3.8 million to more than $95 million after the 1973 coup
(USAID 2015). These decisions represent different possible imperial
EHKDYLRUVDQGDUHLQÀXHQFHGE\SUHYLRXVFRORQLDOJRYHUQPHQWDQGLPSH-
rial actions, relationship outcomes, and the global context. The process
can be thought of as a dynamic bargaining process between the empire
and the informal colony. The determinants of the magnitude, timing, and
combination of imperial military and reparation/aid actions are another
important topic for future further research.

Appendix

APPENDIX TABLE 1
DATA DEFINITIONS AND SOURCES
Variable Variable Name 'H¿QLWLRQ Source
Urrutia-Thomson Treaty vote Ratify 1 is senator iYRWHG<HVLVVHQDWRUYRWHG1R ICSPR U.S. Congressional Historical Statistics
Alternative Urrutia- Reduce 1 is senator iYRWHG<HVLVVHQDWRUYRWHG1R ICSPR U.S. Congressional Historical Statistics
Thomson vote
Versailles Treaty – Peace Peace with 1 is senator iYRWHG<HVLVVHQDWRUYRWHG1R ICSPR U.S. Congressional Historical Statistics
with Germany vote Germany
Crude oil production (A) Crude Senator state s crude oil production value / value of production U.S. Census (1921)
2LOUH¿QLQJFUXGH 5H¿QLQJ Senator state sFUXGHRLOFRQVXPSWLRQYDOXHE\UH¿QLQJ U.S. Census (1921)
consumption (B) value of production
Oil interest Oil interest A+B U.S. Census (1921)
:1RPLQDWH¿UVWGLPHQVLRQ W1 Senator i score on government intervention in economic issues www.voteview.com
W-Nominate second W2 Senator i score on government intervention in social issues www.voteview.com
dimension
Federal tax ratio rank Tax ratio Senator state s rank of ratio federal taxes / federal expenditure 3ULFH)LVKEDFN 862I¿FHRI*RYHUQPHQW5HSRUWV
Indifferent Indifferent 1 is senator i abs(W2) < 0.3005 (top 50 percentile); 0 is all others www.voteview.com
Margin Margin Senator i share of votes - second runner up share of votes in last ICSPR U.S. Historical Election Returns Series
election to 1921
Income per capita Incpc Senator state s personal income / total population Price Fishback (U.S. Bureau of Economic Analysis)
Share illiterate population Illit Senator state s illiterate population older than 10 years / U.S. Statistical Bulletin (1921)
population older than 10 years
Share rural population Rural Senator state s rural population / total population U.S. Statistical Bulletin (1921)
Share black population Black Senator state s black population / total population U.S. Statistical Bulletin (1921)
APPENDIX TABLE 2
DESCRIPTIVE STATISTICS
Variable Name NObs Mean Standard Deviation Minimum Maximum
Ratify 88 0.7841 0.4138 0.00 1.00
Reduce 88 0.2386 0.4287 0.00 1.00
Peace with Germany 88 0.7159 0.4536 0.00 1.00
Crude 88 0.0109 0.0297 0.00 0.18
5H¿QLQJ 88 0.0115 0.0227 0.00 0.13
Oil interest 88 0.0224 0.0493 0.00 0.24
W1 88 0.1761 0.7477 –1.00 0.99
W2 88 –0.0645 0.4404 –1.00 0.88
Tax ratio 88 44.5000 25.5428 1.50 87.50
Indifferent 88 0.5000 0.5028 0.00 1.00
Margin 88 0.2760 0.3142 0.00 1.00
Indifferent*Margin 88 0.1318 0.2589 0.00 1.00
Source6HHWH[WDQG$SSHQGL[7DEOHIRUVRXUFHVDQGGH¿QLWLRQVRIYDULDEOHV
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Holding Up The Empire Colombia American Oil Interests and The 1921 Urrutia Thomson Treaty

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Holding Up The Empire Colombia American Oil Interests and The 1921 Urrutia Thomson Treaty

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Holding Up the Empire:

Colombia, American Oil Interests,

W hy did the United States subsidize American multinationals to

rents, or both. Nor it is clear how the redistributive political struggles

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

PANAMA, OIL, SONJ AND THE UNITED STATES

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

role played by Colombia’s government and SONJ. The historical inter-

The American Empire and Panama’s Secession from Colombia

As the nineteenth century advanced and the United States expanded

Global Oil and the Urrutia-Thomson Treaty

The rise of the American empire coincides chronologically with that

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

The United States consumed about 90 percent of its domestic production

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

The situation surrounding the pipeline negotiations was complex. On

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

and a decree guaranteeing security to foreign direct investment was intro-

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

The archival evidence suggests that SONJ formed a coalition of oil

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

We now examine the Senate vote in a more exhaustive manner and

Pr(vis = 1) = Pr (V1ID1i + V2ID2i + F1 CIs + F2 SIPs + F3 SIRs (1)

where ID is the ideology of senator i, CI is the state s constituency interest,

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

score estimates the typical position of each senator on two dimensions

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

The baseline results of the econometric exercise are presented in Table

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Colombia, American Oil Interests, and the 1921 UTT 265

State census controls No No No No <HV <HV No No

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Oil interest 1.49** 1.52** 1.36** –1.65*** 0.27

intervention in social issues, and tax ratio remain qualitatively identical

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

In column 2 the baseline model now includes the electoral competition

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

the UTT exclusively on their position against government intervention

The archival and econometric evidence examined in the preceding

they were ideologically opposed, three did in fact vote to ratify.

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Winners and Losers

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Duran and Bucheli

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Source&UXGHRLOSULFH2NODKRPDIURPWKH86%XUHDXRI0LQHV YDULRXV\HDUV 2LOUH¿QLQJ

In sum, the oil derivative consumer lost due to the introduction of

The use of power in the allocation of international trade is an important

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

informal colonial policy in the context of informal commercial imperi-

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

previously acknowledged and that special interests have a choice when

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Colombia, American Oil Interests, and the 1921 UTT 281

https://doi.org/10.1017/S0022050717000055 Published online by Cambridge University Press

Oil interest 1.49 1.52 1.36 –1.65* 0.27

Source&UXGHRLOSULFH2NODKRPDIURPWKH86%XUHDXRI0LQHV YDULRXV\HDUV 2LOUH¿QLQJ